Japan’s energy dilemma: a renewables embrace?

In the wake of '3/11', Japan has a major energy quandary. And while nuclear will still likely play a part, the favoured mix would see renewables garner a 30 per cent share by 2030. The public response will be fascinating.

This week or next, the Japanese prime minister is expected to announce the restart of Kansai Ohi reactors 3 and 4 in the west of the country.

All 50 of Japan’s functioning nuclear reactors are now shut, as a result of rolling safety checks and resistance on the part of local governments to restart them. The decision to fire up two before the peak summer period will not be taken lightly. But modeling by the Institute of Energy Economics of Japan demonstrates the immensely difficult choices the country is facing.

The IEEJ modeling shows that, without restarting the two reactors, the country will face an electricity gap of more than 7 per cent from peak demand this summer. Energy savings of over 12 per cent would be necessary across the country to negate this, and the savings rate would need to be higher in the most affected western regions and Tokyo.

Unemployment in the western industrial cities could rise by as much as 100,000 as the production index fell by 3.4 per cent. Instead of a modest trade surplus of some 500 billion yen, a trade deficit of 2,500 billion yen would result in the third quarter of 2012. Faced with these numbers, and with the burden of importing more coal and gas for electricity, the government is likely to bite the bullet on nuclear restarts.

The announcement of the restarts may be twinned with another announcement, of a 'national dialogue' on future energy policy. Japan reviews its energy policy plan every three years, with the last review completed in June 2010. The events of '3/11', as the Japanese call the tsunami disaster, has brought forward a fierce debate on where the country goes from here.

The debate is notable in that it is front page news, including speculation on utilities being split up and electricity markets reformed. The media would not have reported such possibilities before 3/11, given the traditional close relationships among utilities, industry and government.

A key element in the national dialogue will be the future energy mix for Japan to 2030. Three advisory committees – to METI, Environment and Cabinet – have been consulted and the government is ready to put out three options for public consultation. These involved shares for nuclear in 2030 set at 0 per cent, 15 per cent and 20–25 per cent.

The most favoured option is option 2. This includes 15 per cent nuclear (which contributed 26 per cent of Japan’s generated electricity in 2010), an increase of renewable energy to 30 per cent, an increase in co-generation to 15 per cent, and a decrease in thermal power to 40 per cent.

A decision to keep nuclear power will not be popular, but both the IEEJ and the key business group, the Keidanren, believe that the public is not yet aware of the costs associated with other options. Japan has little in the way of indigenous fossil fuels and increased imports of coal and gas have been placing an immense burden on the national economy, as well as driving up prices in Asia generally. The feed-in tariff regime for renewable energy that will start on 1 July is extremely generous and will add to consumers’ bills. However, not even the newly established Japan Renewable Energy Foundation believes that it can drive renewable energy much beyond 30 per cent of the generating mix by 2030.

The IEEJ estimates that reducing nuclear to 15 per cent of the mix will drive up overall generating costs from 7.5 trillion yen in 2010 to 13.4 trillion yen in 2030. This is a about 2 trillion yen higher than the 2010 basic energy plan, which foresaw nuclear increasing to 50 per cent in the generation mix by 2030. There will be impacts on CO2 emissions as well. Keidanren modeling estimates that option 2 with 15 per cent nuclear will change Japan’s ambitions from a 25 per cent reduction in 1990 emissions in 2020 to 20 per cent by 2030.

A second element in the national dialogue on Japan’s energy future will be energy market reform. The government appears to have got the message that the public want more choice in their energy supply.

The limited transmission links between the east and west of the country – a result of vertically integrated regional monopoly supply by utilities – has exacerbated the current electricity situation since regions with excess supply cannot transmit to regions with shortages. Unbundling of generation and transmission is therefore likely to become a topic for debate. Surprisingly for economically literate organisations, neither the IEEJ nor the Keidanren at this point are convinced of the benefits of unbundling.

Whatever Japan’s future, it seems likely to include some nuclear. A reduction to 15 per cent of the generating capacity can be achieved by building no more nuclear plants and retiring the existing ones as they reach the end of their 40 year life span. However, a bill currently before the Diet that allows the extension of this span to 60 years if the facility is proved safe illustrates that the government is not yet ready to give up on nuclear.

It will be interesting to see what happens when they let the public have their say.

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